Marketing considerations in entrepreneurship

Good for management students

1. Marketing Considerations LECTURE 11 URE Dr Nicholas Ngonde RE

2. INTRODUCTION Marketing plays a major role in our daily lives. Each day is filled with consuming products made available by marketers. We pay for marketing each time we buy a product. Marketing is responsible for satisfying customers, which, in turn, increases our standard of living and quality of life. The strategy for marketing goods produced by entrepreneurs must, therefore, be ultimately beneficial to the consumer. No consumer is going to purchase goods unless he is satisfied with their quality and wherever necessary by an efficient after-sales service.

3. Selecting the Target Market The target market represents a group of individuals who have similar needs, perceptions and interests. They show an inclination towards similar brands and respond equally to market fluctuations. Individuals who think along the same lines and have similar preferences form the target audience. Target market includes individuals who have almost similar expectations from the organizations or marketers. The selection of a target market is a very important decision for a firm as it requires significant effort and commitment to implement an appropriate and targeted marketing mix.

4. Target marketing can be a particularly valuable tool for small businesses, which often lack the resources to appeal to large aggregate markets or to maintain a wide range of differentiated products for varied markets. Target marketing allows a small business to develop a product and a marketing mix that fit a relatively homogenous part of the total market. By focusing its resources on a specific customer base in this way, a small business may be able to carve out a market niche that it can serve better than its larger competitors. Identifying specific target markets – and then delivering products and promotions that ultimately maximize the profit potential of those targeted markets – is the primary function of marketing management for many smaller companies.

5. There are infinite ways to address the wants and needs of a target market. For example, product packaging can be designed in different sizes and colors, or the product itself can be altered to appeal to different personality types or age groups. Producers can also change the warranty or durability of the good or provide different levels of follow-up service. Other influences, such as distribution and sales methods, licensing strategies, and advertising media, also play an important role. It is the responsibility of the marketing manager to take all of these factors into account and to devise a cohesive marketing program that will appeal to the target customer.

6. Market Strategy Small Businesses can gain a competitive advantage over larger competitors by tailoring their products or services to meet the demands of the individual customer. This tailoring can be done through the means of the product/service offered, price, promotion, and distribution. The above is known as the marketing mix. Another advantage is that small businesses offer a more personalized interaction with the customer. First of all, a marketing strategy that you should take advantage of both offline and online is networking . This is probably the single most important strategy you can look into. As a small business, you will find that one of your first and most important hurdles is simply getting people to know that you exist.

7. Beyond online and offline networking, another avenue for marketing in both venues is promoting your business through ads. In the real world, this can be done through print and flyer ads, stationary, vehicle tags, and window displays, while on the internet, you can pursue things like pay per click marketing. Market penetration is a strategy of increasing your share of existing markets. You might achieve this by raising customers’ awareness of your products and services or finding new customers. Market development is a strategy of finding and entering new markets with your current product or service range. The new market could be a new region, a new country or a new segment of the market.

8. Beyond online and offline networking, another avenue for marketing in both venues is promoting your business through ads. Product development is a strategy for enhancing the benefits you deliver to customers by improving your existing products and services or developing new ones. Diversification is a strategy that usually carries high costs and high risks. It often requires firms to adopt new ways of doing business and so has consequences far beyond simply offering new products/services in a new market. It is therefore usually a strategy to be adopted when other options are not feasible

9. Pricing methods Mark up pricing The most elementary pricing method is to add a standard markup to the product’s cost. Markup price = Markup varies considerably among different goods. Markups are generally higher on seasonal items (to cover the risk of not selling), specialty items, slow moving items, items with high storage and handling cost. Going rate Pricing In going-rate pricing, the firm pays less attention to its own costs or demand and bases its price largely on the competitor’s price.  

10. Target-Return Pricing The firm determines the price that would yield its target rate of return on investment (ROI). Target-return price = Perceived-value Pricing An increasing number of companies are basing their price on the product’s perceived value. They see the buyer’s perception of value, not the seller’s cost, as the key to pricing. They use the non-price variables in the marketing mix to build up perceived value in the buyers’ minds. Price is set to capture the perceived value.  

11. Various strategies for pricing Premium pricing Premium pricing uses a high price where there is a unique brand. This approach is used where a substantial competitive advantage exists and the marketer is safe in the knowledge that they can charge a relatively higher price. Such high prices are charged for luxuries such as Savoy Hotel rooms, and first class air travel. Penetration Pricing The price charged for products and services is set artificially low in order to gain market share. Once this is achieved, the price is increased. Examples include telecom companies entering new markets/regions.

12. Price skimming In this pricing strategy, relatively higher prices are charged for a short period of time and then the price is reduced so that the product becomes available to a larger market . Price skimming sees a company charge a higher price because it has a substantial competitive advantage. However, the advantage tends not to be sustainable. The high price attracts new competitors into the market, and the price inevitably falls due to increased supply. Psychological Pricing This approach is used when the marketer wants the consumer to respond on an emotional, rather than rational basis. For example Price Point Perspective (PPP) 0.99 Cents not 1 US Dollar. Price therefore may be an indication of quality or benefits in unfamiliar markets.

13. Optional Product pricing Companies will attempt to increase the amount customers spend once they start to buy. Optional ‘extras’ increase the overall price of the product or service. For example, airlines will charge for optional extras such as guaranteeing a window seat or reserving a row of seats next to each other. Captive Product Pricing Where products have complements, companies will charge a premium price since the consumer has no choice. For example a razor manufacturer will charge a low price for the first plastic razor and recoup its margin (and more) from the sale of the blades that fit the razor.

14. Product bundle pricing Here sellers combine several products in the same package. This also serves to move old stock. It’s a good way of moving slow-selling products, and in a way is another form of promotional pricing. Promotional Pricing Pricing to promote a product is a very common application. There are many examples of promotional pricing including approaches such as BOGOF (Buy One Get One Free), money-off vouchers and discounts. Geographical Pricing Geographical pricing sees variations in price in different parts of the world. In some countries there is more tax on certain types of product which makes them more or less expensive, or legislation which limits how many products might be imported again raising price.

15. Product bundle pricing This approach is used where external factors such as recession or increased competition force companies to provide value products and services to retain sales. Value price means that you get great value for money i.e. the price that you pay makes you feel that you are getting a lot of product. In many ways it is similar to economy pricing. One must not make the mistake of thinking that there is added value in terms of the product or service. Reducing price does not generally increase value.

16. Services Marketing considerations A service is an activity that one party offers another that is essential, intangible and does not result in the ownership of anything. Its production may or may not be tied to a physical product. The four main characteristics of service are intangibility, inseparability, variability and perishability. Perishability Perhaps of all the suggested special characteristics of service products, this is one of the most difficult to appreciate. Why? Services are highly perishable compared to physical products. The reason is that, unlike most physical products, many services cannot be stored. For instance, if an airline does not sell all the seats on a particular flight, then those seats or rather the sales revenue of filling of them would have carried, has immediately and irreversibly gone.

17. Intangibility Physical products in the store are widely displayed for customers to see, feel, touch, weigh or sniff at before deciding whether or not to buy. Comparing this with the choice of the service of say, an insurance policy. You cannot touch, see or smell the products before choosing, although clearly you can make some assessment based on past experience, word of mouth, or even the location and decor of the insurance office. Variability In the production and marketing of physical products, companies have increasingly paid special attention to ensuring consistency in quality, features, packaging, and so on. More often than not all customers can be sure that every bottle of Coke he/she buys, even in a life-time of purchases, will not vary.

18. The provision of services, however, invariably includes a large measure of the “human element”. Indeed, with many services, we are purchasing nothing else but the skills of the suppliers. Because of this, it is often very difficult for both supplier and consumer to ensure a consistent “product” or quality of service. Inseparability A key distinguishing feature of service marketing is that the service provision and provider are inseparable from the service consumption and consumer. For example, we cannot take a hotel room home for consumption; we must “consume” this service at the point of provision. Similarly, the hairdresser needs to be physically present for this service to be consumed.

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